From Tomorrow, Foreigners' Investment in Government Bonds Tax-Exempt... Expectation of Exchange Rate Stability

Deputy Prime Minister Choo Kyung-ho Holds Meeting with Accompanying Reporters in Washington DC
Foreigners Exempt from Tax on Government Bond Investments Starting 17th... Expecting Exchange Rate Stability
On Korea-US Currency Swap: "No Further Discussion"

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is answering questions at a press briefing with accompanying reporters held in Washington DC, USA, on the 14th (local time). (Photo by Ministry of Economy and Finance)

From the 17th, no taxes will be imposed on interest and capital gains earned by foreigners from investing in South Korean government bonds. The government initially planned to reduce such tax exemption benefits starting next year, but accelerated the application date by about three months due to escalating exchange rate instability. This measure is expected to help stabilize the financial and foreign exchange markets by increasing dollar inflows if foreign demand for government bonds rises.

On the 14th (local time), at a press briefing held in Washington DC, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho stated regarding the law exempting foreigners from taxes on interest income and capital gains from investing in South Korean government bonds, "(Through amendments to the Enforcement Decrees of the Corporate Tax Act and Income Tax Act) we plan to apply a flexible tax rate and implement it from October 17 this year until the end of this year."

Earlier, the government announced in the tax reform plan in July that starting next year, non-resident individuals and foreign corporations investing in government bonds and Monetary Stabilization Bonds would be exempt from taxes on interest and capital gains. However, due to recent sharp interest rate hikes by the U.S. Federal Reserve (Fed) and increased financial market instability such as the won-dollar exchange rate, the government advanced the application date of the tax exemption benefits.

Until the end of this year, tax exemption benefits will be provided for foreign investment in government bonds and Monetary Stabilization Bonds through enforcement decrees, and from next year, the law will be amended to make the exemption permanent.

Deputy Prime Minister Choo explained, "This is an early implementation to attract foreign investment funds before the tax law amendment scheduled for January 1 next year," adding, "If foreign investment funds actively flow in due to this measure, financial market stability is also expected."

The Ministry of Economy and Finance expects that if such tax exemption benefits are applied, demand for South Korean government bonds will increase, leading to a decrease in bond yields and active foreign investment in government bonds, thereby expanding domestic dollar inflows.

South Korea was recently listed as a watchlist country for the World Government Bond Index (WGBI), increasing foreign investors' interest, and this measure also aims to encourage foreign investment in government bonds. The WGBI is an index representing advanced countries' government bonds and serves as a benchmark for investment institutions worldwide when purchasing government bonds. The funds tracking the WGBI are estimated at about 2.5 trillion dollars.

South Korea currently taxes foreign investors' government bond interest income at a 14% rate, but major OECD countries such as the United States, the United Kingdom, Germany, and France do not tax foreign bond investments. FTSE Russell, which manages the WGBI, will review country classifications for bond markets in March and September next year, and this tax exemption measure is expected to influence the evaluation for inclusion in the WGBI.

Meanwhile, regarding the Korea-U.S. currency swap, Deputy Prime Minister Choo said on the same day, "We will not discuss the currency swap further for the time being," adding, "In the previous conference call with U.S. Treasury Secretary Janet Yellen, and reaffirmed this time, we agreed to cooperate to implement liquidity supply measures if it is judged necessary due to worsening foreign currency liquidity or tightening issues in Korea, including neighboring countries."

Washington DC = Reporter Moon Je-won

This content was produced with the assistance of AI translation services.